AAPL: CEO Cook ‘The Right Guy’ for ‘Exceptional Company,’ Says UBS

By Tiernan Ray

UBS hardware analyst Steve Milunovich today reiterates a Buy rating on Apple (AAPL) and a $500 price target, observing that even thought the shares have lately become a “trading stock,” and even though Apple’s challenges of late “are summarized by the view that most of Apple’s success can be attributed to the unique capabilities of Steve Jobs,” nevertheless he is “more optimistic” that CEO Tim Cook “is the right guy.”

Milunovich cites the negative view of Apple, and Cook, in the form of commentary from “industry observer” Mark Anderson, offered via a recent UBS conference call for investors. Anderson’s contention is Cook is “a nice guy,” but things such as making the largest bond offering in history suggest he is merely “an operations guy” like other leaders in time at great companies, such as former Intel (INTC) CEO Craig Barrett:

What these companies need are tech visionaries who really are informed about technology and can take that into a product design that will be successful worldwide. I don’t think that Tim is that guy. So I’ve been deeply concerned about Apple and I just feel as though the stock has done exactly what we thought it would do. One guy really does make the difference. It doesn’t matter whether it’s Microsoft or Apple or Intel. That’s not necessarily how tire companies work, but that’s how tech companies work.

But Milunovich then counters with his view that while Steve Jobs is irreplaceable, and “the stock may never again be the ‘rocket ship’ it once was’” nevertheless Cook is the right leader for a more complex, more contentious time for the company:

We give CEO Tim Cook the benefit of the doubt given that (1) Jobs endorsed him, (2) Cook hasn’t been on the job long enough for us to make an informed assessment, and (3) he might be the kind of CEO needed for the contentious environment Apple enters as an industry leader for the first time in its history. He may be what Jim Collins calls a Level 5 CEO, a low-ego leader with stoic resolve to make the company great. In fact, he has handled the challenges of worker conditions, warranty issues in China, capital return demands by investors, and tax questions before Congress with aplomb.

Milunovich cites a blog post a week ago, “Tim Cook Is a Great CEO,” by Ben Thompson of Stratechery.com who writes that in a brief internship at Apple, during which he met Jobs and Jony Ive and the rest of the Apple management team, “Cook was, by a significant margin, the most impressive of all of them.”

Milunovich also cites remarks by author Dr. Michael Raynor, author of the book “The Three Rules: How Exceptional Companies Think,” citing the “three rules” for great companies:

Better before cheaper—they rarely compete on price; Revenue before cost—they drive profits through price and volume, not thrift; There are no other rules—everything else is up for grabs and they are willing to change anything to remain true to the first two rules.

Citing a metric for all that, return on assets, or ROA, Milunovich notes “ROA has been in the top two deciles since 2007 when the iPhone was introduced.” He thinks Cook is operating in accord with Apple’s focus on “better before cheaper,” though that doesn’t guarantee stock performance:

Raynor argues that the Mac and the iPad were disruptive innovations while the iPod and iPhone were sustaining. However, each followed the rules of better before cheaper and revenue before cost. Cook reinforced these principles at WWDC in repeating his mantra that Apple is not about making the most but making the best products [...] But there may be method to Apple’s apparent madness in dragging its feet on new products like lower-end and larger-screen phones. The brand promise of great consumer products at reasonable prices has a long-term worth that shouldn’t be undercut by chasing opportunities that undermine the promise. Raynor’s long-term study confirms that Apple is right to err on the side of avoiding price competition in favor of providing superior products. CFO Peter Oppenheimer has said that at times Apple will push lower-margin products in order to increase its customer base (the coming midrange phone might be an example), but Apple’s primary strategy is create differentiated must-have products [...] There is a good chance that sustained, superior relative ROA will result in an outperforming stock, but stock prices are driven by performance relative to expectations, not relative to how other companies do financially.

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There are 25 comments

JUNE 18, 2013 12:24 P.M.

George wrote:

Tim Cook as CEO does not have what Apple needs to remain a company that is light years ahead of its competitors. Any CEO who sees his stock value goes down by almost 50% should fire him/herself. That's exactly what Tim Cook should do. By this action, he would do the honorable decision that Apple stock holders like him to do.

JUNE 18, 2013 12:30 P.M.

Anonymous wrote:

this is typical wall st. their endorsement of TIm has more to do with being able to pitch themselves down the road for their investment banking business than it does understanding what it will take to be competitive moving forward. I like Tim, but he's a tactical operations guy, not a visionary thinker of what comes next as his predecessor was.

JUNE 18, 2013 12:41 P.M.

Anonymous wrote:

While Cook may not deserve the vitriole he attracts, to say he's a "great CEO" is equally baseless. Maybe he's better running hte company than giving speeches, but Apple since Jobs died has disappointed. It may have anyway, given it's locked-in to products for 12-18 months, but the street would have given it much more of the benefit of the doubt if Jobs had been around.l and the stock and company wold not be getting kicked around by stupid rumors and baseless condemnations if Jobs were around. he would call out the so-called legitimate press that comes out with silly articles and rumors.

Cook deserves another year before judgment should be passed. if anything he seems more flexible than Jobs who would insist forever that a 4 inch screen is ideal. clearly Apple is not working on larger screens.

JUNE 18, 2013 12:43 P.M.

Steve wrote:

I think I will go with Steve Jobs decision to select Cook as his successor over George's brilliant comment.

JUNE 18, 2013 12:43 P.M.

Anonymous wrote:

George:

what you say isn't untrue, but consider that the recent 40% selloff came after an 80% increase in 9 months. that 80% increase was under Cook. not saying he gets a pass, but lets not just throw in the negatives. it's not Cook's fault analysts and investors foolishly believed that Apple would continue to grow earnings 200% per year to infinity and bid the stock up 80% in 9 months.

JUNE 18, 2013 12:51 P.M.

Patrick wrote:

I don't think that he is the right guy for the job.

JUNE 18, 2013 12:59 P.M.

ILoveEricS wrote:

I guess this is "changing the narrative"...the funny part about all this kvetching on aapl is that nothing has actually changed in the performance of the company. Sure, they missed analyst crazy expectations for past few quarters, and they haven't churned out all the crappy products analysts thought they should have, and they haven't dropped some new, totally earth shattering product every single year as analysts said they should be. And, yes, profit growth has slowed from all-time best ever for a company this size in the history of mankind to just plain crazy good. Yet still the "narrative" remains: "Steve is gone, so this company is screwed like the last time." Yawn. I wish I could earn a six figure salary for coming up with such droll analysis and then sitting back and making up conjecture about everything that could go wrong, inventing data points to support that "thesis" and saying "see, I told you" when the data points are not really true but everybody in your community gives you a pass anyway. Such is the new world order of media: if you can think it and say it aloud to enough people, they will believe it, regardless of content or veracity.

JUNE 18, 2013 1:06 P.M.

Anonymous wrote:

AAPL IS A STEAL. RECENT VISIT TO AN AAPL STORE THE OTHER DAY AND SALES REPS SAID IMACS AND MACBOOK PRO'S MAC AIRS ARE SELLING REALLY WELL

JUNE 18, 2013 1:16 P.M.

Market Mayhem wrote:

Take one quick glance at today's tech company share prices. All of them are in the green except one. That's Tim Cook's company. If he's running Apple right then something else must really be wrong. Google is flying. Amazon is flying. Priceline is flying. Apple is stuck in quicksand. No, cement. I don't want to hear any more about Tim Cook. Apple is just sitting on too much money to have nothing going on in the way of products or acquisitions. It's absolutely ridiculous. Apple almost has to go out of its way to lose so much money for stockholders in a rising market. Hey, I can understand a sell-off but it didn't happen to either Amazon or Google. Apple has been sold off for nearly eight months, fer crissakes. Make all the excuses you want for Tim Cook, but this is not the share price of a successful company. The P/E is way too low.

JUNE 18, 2013 2:05 P.M.

zato wrote:

"One guy really does make the difference. It doesn’t matter whether it’s Microsoft or Apple or Intel."

The professional anti-Apple propagandists have played their "Apple is done" card to no avail, other than stock price.

JUNE 18, 2013 2:54 P.M.

Ed wrote:

Are you kidding me? Tim Cook sux at running Apple and is without question a big Pussy! He is not the right guy for Apple and he needs to be fired yesterday. This guy is a F joke!

JUNE 18, 2013 3:00 P.M.

Sal wrote:

Tim Cook has FAILED. Repeat, FAILED This market has SOARED while Apple has gone backwards. Tim Cook is getting filthy rich off of Steve Jobs soul and off the hard earned money of shareholders and employees. Enough of the BS on Tim Cook. He should RESIGN. If Apple was being run by Hastings, Page, Schmidt, Hurd or Ellison the last year, Apple would be over 800. This gut hasn't a F clue and until the Board fires his as_, this company is going nowhere. What a Sorry state Apple is in. Cook can't do anything right and Apple is the weakest and most sorry stock to own now. It is the joke on Wall Street.

JUNE 18, 2013 3:00 P.M.

Honestly wrote:

I think Apple's naysayers are the most neurotic guys around in tech and investing/trading. Some advice. Beat it. Beat it more often. Wackawackawackawacka... lol. And get back to us. Seems to work for Dov Charney at American Apparel. That's what he says in the interview...

JUNE 18, 2013 3:05 P.M.

Ron wrote:

Tim Cook is a complete and utter FAILURE!

JUNE 18, 2013 3:24 P.M.

Anonymous wrote:

To you guys who are anti Cook. You are all mentally ill. Maybe you'll be included in the DSM version VI.

JUNE 18, 2013 3:33 P.M.

Roger wrote:

Sent Tim Cook to China on a One Way ticket.

JUNE 18, 2013 3:39 P.M.

I'm British wrote:

Can I be on the list of potential Apple CEO candidates? One question. Do I have to be circumcised? The other guys on the list seem to be little knobs. I'm really hung man. Part of my tech charm. Or is that why you guys don't like Cook?

JUNE 18, 2013 3:46 P.M.

Paul wrote:

Maybe Timmy should file some more lawsuits and go visit Congress! Timmy for Senate. Competitors are eating Apple's lunch and Timmy is sleeping in Cupertino and looking at his new Spaceship HQ's! Timmy the Man....

JUNE 18, 2013 3:52 P.M.

@ Paul wrote:

That's right. Cept for one thing. You slobs are so jealous you wish Cook was lunch. Nobody is eating Apple's lunch.

I certainly wouldn't want to work for Microsoft, Google, Blackberry or Samsung or Nokia. Et cetera. They hsve no soul. That space ship H Q is going to be phenomenal. Eat your little hearts out.

JUNE 18, 2013 4:01 P.M.

Ray wrote:

China Mobile will stick it to Cook and Apple. They don't need any I-phones trust me.

JUNE 18, 2013 4:55 P.M.

Susan wrote:

Comic relief! We all need it. Cook the right guy for the job! I have some swamp land in Florida I want to see you too. Barron's is a Funny paper.

JUNE 18, 2013 5:03 P.M.

@ Susan wrote:

I'll tell you something. I will buy your swamp land. One condition. Can it be drained of water? How much do you want?

JUNE 19, 2013 9:56 A.M.

tamoem wrote:

Answer this question and you'll know the direction of the company. What product, software or service has Tim Cook released that he said was great has actually turned out to be great and exceed customer or investor expectations? Can't think of any can you. So when Tim Cook says something great is coming what do you think will happen. Well it's easy the next blackberry, development time is too long, too costly and they are so focused on telling us what we need they won't listen to the markets. Tim Cook is clearly the problem. Replace him with Jeff Bezos and the stock would double in a year.

JUNE 19, 2013 11:11 P.M.

Anonymous wrote:

Tim Cook can keep the ship moving helped by its earlier momentum but he cannot change its direction nor make it go faster.

JUNE 20, 2013 4:38 A.M.

@ tamoen wrote:

You're an idiot. Like we really want Bezos leading Apple to produce devices like the craptastic Kindle Fire. Sorry. I didn't mean to call you an idiot. You're brain dead pal. And put some cotton in your ears. We don't want any maggots reaching maturity and flying out of your ears.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.